Multistate Income Tax

Chapter 3Filing Methods for Multistate Taxpayers

Learning objectives

• Distinguish among separate, consolidated, and combined filing.
• Identify the key cases defining a unitary relationship.
• Recognize the different unitary tests.
• Recognize the Multistate Tax Commission’s (MTC) regulation on unitary relationships.

Introduction

If a corporation is, by itself or as a member of an affiliated group, doing business in more than one state, the tax practitioner must not only grapple with questions of nexus, but also the methodology for determining the taxpayer’s tax base. In other words, for any specific state we must determine if we are filing separate company returns, a consolidated return, or a “combined” or “unitary” return.

Separate, consolidated, or combined filing

Separate filing means just that. Each company with nexus in the state must file its own separate return, regardless of whether it is part of an affiliated or consolidated group. There are a number of states that allow only separate filing, and as such, each and every company with nexus must file a separate return. It is irrelevant whether the corporation is a standalone entity or a member of a controlled, affiliated, or consolidated group. Those states requiring separate filing (some have a return for consolidated, but require each corporation to also file a return on a separate basis) include Alabama, Arkansas, Delaware, Florida, Georgia, Iowa, Louisiana, Maryland, Missouri, New Jersey, North Carolina, Oklahoma, ...